The Markets

Foreign exchange Trading
Small investment – large impact

Foreign exchange trading has no fixed terms and guarantees which makes liquidity and the possibility of acting at any time its central characteristics. Then there is also a high level of volatility, and most of all transparency.

Foreign exchange trading actually has the highest turnover of any market segment. Daily global turnover is estimated at a massive three trillion US dollars. Then there is the inter-bank trade with foreign currencies and interest rate derivatives with an additional two trillion US dollars in daily turnover, and the trend is still expanding. According to a survey by the Bank for International Settlements, foreign exchange trading revenues rose by 70 percent in the years 2004-2007 alone. However, it is not merely the high liquidity levels that foreign exchange traders see as a benefit. As opposed to certificates or funds there are no fees involved in foreign currency trading. Only the spreads between the purchase and sales price need to be paid. In addition, trading is possible practically around the clock.

It is thus possible to act and react at any time. Due to the permanent fluctuations between currencies, it is possible to make substantial profits within a single trading day but it is also just as easy to suffer heavy losses.

A basic element in currency or also foreign exchange trading is the possibility of using “leverage” in trades, i.e. using a low level of funds to move significantly higher levels of capital. Standard gearing in currency trading is 1:100. For example you can use a €1,000 investment to trade currency worth €100,000. So if the currency you purchased experiences a price movement of 0.5 percent in your favor, for example, and you close your position, you will have a profit of €500. Your €1,000 investment thus earns a 50 percent return.

Currencies tend to move one percent a day. The thrill of the trading lies in the opportunity to earn tidy profits from slight price movements within a short space of time. However, the risk of loss is the flip side to this opportunity. For “speculative temperaments” with the necessary financial means, foreign exchange trading provides a unique environment with its speed, high liquidity and especially its leverage. Transparency and the possibility of reacting to latest conditions around the clock are further advantages.